GLOBAL INDEXES BREAKING-OUT? PHASE I-Pre EARNINGS(Ft.15 charts)Four Major Global Indices; Series on Equities- January 19th 20'
Questions that need answers
Plenty of good news last week (Chinese Growth ~6%, PHASE I deal, global bounce in manufacturing data, USMCA vote etc etc) . Many worries had been pacified ahead of earnings, so what is the price action in some of the major global markets? Spoiler , obviously due to the high correlation, equity markets are near break-out points globally .
This idea is a continuation of my previous idea, which has been tracking the SPX extremely well in the past two weeks. The question is will the momentum run in the SPX continue to 3450? Based on this chart on global indices, in case a breakout occurs, SPX might over-extend even further to 3450. And then there's the earnings season..
US equities were the first ones to show signs of breaking out the 3000 range back in November of 2019. This means that despite the high correlation, equity markets globally have been trailing behind, and only now appear to show signs of breaking out. Before I get into the indices charts, firstly few important updates for the weeks ahead:
1. DXY appears to be breaking out of the wedge, attempting to come back inside the uptrend.
Despite all the new liquidity that was pumped by the FED in their "Not QE" operations, the dollar seems to have regained strength post Phase I. Of course, this devalues other indices, but at the same time implies that the demand for the dollar continues. Two very contrasting factors that can be the difference between a bull run and a liquidity crunch.
2. TLT medium duration notes. Attempting to breakout of the downtrend, but without any success the past two weeks.
TLT is a great inter-temporal hedge to stocks. And if TLT breaks out in the next few weeks, it might give a hint for a potential pause to the rally in equities.
3. Boeing BA, the elephant in the room . To keep it short, if BA's earnings are a debacle, this can really dampen the drive for equities in the short term.
Getting the MAX back flying, it's the difference between SPX having positive and negative operating profits. Closing below 320, eventually 317, we could see a sell-off back to ~290.
4. IEMG . Emerging markets are breaking out of their rectangular formation. Still far from their all time highs.
Emerging markets are the growth engine . Tariffs staying in place post phase I, certainly doesn't help.
5. NIKKEI 225 . Back to indices. Nikkei's current trend developments and targets. ~26000-27000 would be the optimal range in case a breakout occurs for 2020.
6. DAX 30 . Sentiment is lacking, but there appears to be a small bounce in manufacturing data.
Of course, this is on the back of the expanded balance sheets, and the rally will last as long as the ECB keeps QE-eternity and the FED keeps the "Not QE" bill purchases.
7. FTSE100 . Post Brexit and post phase I, searching for a breakout. Expectations are that the BoE will provide an accommodating environment, perhaps with few rate cuts.
Retail sales data isn't getting better, maybe that'll change if the expected fiscal spending increase takes place?
8. Stoxx50 . Pitchfork based on the usual fib. levels. Again, obviously high correlations, trailing breakout.
9. Stoxx600 . More importantly, the the index as a whole is doing much better. Practically has followed SPX500 without trailing.
10. FTSE MIB 40. QE accommodating environment largest beneficiaries are the southern European economies.
Nevertheless, how can the stock market be breaking-out, after the economy practically had a mini-recession in 2018, and the economy has grown at 0.1 %?
11. IBEX 35 . Of course similar story to the FTSE MIB40. All the worries about the new socialist government, and yet here we are- a new rally.
12. SG30- Using Singapore, as a proxy to India cancelling all the noise there. The newest Cass freight index points out that the slump in global trade has continued despite the bounce in manufacturing.
Singapore as a major travelling, a trading hotpot and due to the openness of the economy can give a hint of the actual strength and improvement in economic conditions.
13. OMX30. OMX30, currently forming a bearish wedge. Interestingly, Riksbanken had a surprise hike in rates back to 0%, despite the slump in manufacturing data(no bounce).
14. OMXPI. Overall the Nordics as a safe heaven have tracked SPX carefully. OMXPI despite the low volume, managed to breakout.
Question is, is this a good selling spot or a trend continuation?
15. Russell 2000. Finally, US small caps. Many issues with them, one being over-leverage. 170 proved to be a great profit taking point on Friday, as I've suggested previously.
To wrap up this extensive idea on global markets. Breakout areas are a great profit taking point. If we do not breakout of the current range, instead we might get a 5-7% correction. I wasn't satisfied with the deal, but that's a discussion for another idea. Banks had a satisfying performance last week, and looking ahead NFLX on Tuesday could give off some hints about the direction where the tech sector will be heading. As mentioned BA is the major one. Disclosure on their progress will be key to overall market return s. To answer some of my questions shortly, what I can say is, currently stocks are expensive, but are they overpriced? - Not as long as the "Not QE" program is supplying juicy liquidity that seems to be flowing directly to equities. The larger issue at hand, is that investors are becoming accustomed to QE as the answer to all of their worries. Underneath QE, there's practically no growth ; 2% with fiscal deficits rising and QE expansion, how can this mean that the US economy is sustainably growing?
This is it for global markets analysis. Thank you for the support! Means that my effort is not in vain. Message me if you'd like to discuss ideas, charts. I'll try to answer in due time.
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